Market starts to swing downwards (lowering price) 3.

They had a lower credit score. 

Assuming around 50% expenses and $840k PP you're at a 4.5 cap.I don't know your market at all but that doesn't sound like a great deal.It sounds like a brand new A class building so expenses should be lower though.You would need to get all of the actual numbers to really analyze it properly.

It depends how long the house has been for sale and whether or not it is listed on MLS, but if you offer expect to get countered lower. 

Since the now current market value is lower than than what I'm in it for, basically underwater till the market turns or I pay down the note. 

I usually run an 8% assumption on vacancy.Capex and Repairs at 7% are probably ok, although if you are putting $35k into repairs upfront you may have lower Capex and repairs on the unit for the first 5+ years.  

I was hoping to offer a lower price due to current condition and slowly raise the payment back as we get more tenants. 

Now I'm also a GC so my build cost may be lower than somebody who needs to hire a GC.

I believe it tends to give me a slightly lower return, because the sponsor is going to be more careful, and if there is a severe downturn will prevent me from taking catastrophic losses.

While it is difficult in Texas especially at a lower price point, call a local title company.